Bangladesh's stock market has a unique feature, which is not common in any matured and standard bourse around the world. It is the presence of a handful large-cap shares in the country's secondary market, because of which constitution of market capitalisation is in an imbalanced and uneven state.
Such presence of a few large-cap shares leaves wide scope of market manipulation since the market trend represented by share-price index can easily be manoeuvred by trading minimum number of shares at higher or lower price. This happens because share price index is calculated based on total market capitalisation and thus, change in index is reflected through change in entire market cap regardless of how many shares are traded.
Also, listing of only a few large-cap companies makes the entire market vulnerable to performance of those few companies. If anything goes wrong with any particular large-cap company, the whole market is impacted as is the case of GP (Grameenphone) shares in the present market condition.
GP SHARES MARKET-CAP: Grameenphone is one of a very few companies which has the largest market capitalisation in Dhaka Stock Exchange (DSE). GP's market capitalisation is so high that no other company's market cap is close to it. GP's market capitalisation, according to market information, is Tk 492 billion while DSE's total market capitalisation is Tk 3,562 billion. So GP share accounts for 14 per cent of DSE's total market capitalisation. Second and third positions are held by BATBC (British American Tobacco Bangladesh Company) and Square Pharma at Tk 191 billion and Tk 169 billion respectively representing 5.36 per cent and 4.74 per cent of DSE's total market capitalisation.
Ten large-cap companies occupy almost 50 per cent of DSE's total market capitalisation, compared to GP's holding of 14 per cent of the market capitalisation. These figures clearly reveal that how extensively the entire market is dependent on the performance of only 10 companies and thus GP share has heavy influence on the market.
The country's stock market remains in the bearish state for long and of course, there are obvious reasons behind continuous fall in the market trend, but GP share's present situation is also one of major contributors to the current situation of the country's stock market.
GP'S PROBLEM WITH GOVERNMENT: GP has an outstanding issue with the government because through audit it is unearthed that GP owes enormous amount of money to the government two agencies. GP's outstanding amount has reportedly accumulated to Tk 1,259 billion of which Tk 850 billion is due to BTRC (Bangladesh Telecommunication Regulatory Commission) and the rest, Tk 409 billion, is due to NBR (National Board of Revenue).
Initially GP tried to deny this allegation but finally the matter was referred to the High Court and it is apparent that GP would have to make this payment to the government. Dues to the government are basically people's money, so there is no other way but to pay this money. It is alleged that GP, known internationally as a standard company, has not paid government dues since its inception and consequently, total amount has come to this enormous figure. Regardless of whether this may have resulted from either deliberate or inadvertent action, GP did not clear dues to the government on time.
However, the question arises as to how this issue remained unnoticed for so long and why external and internal audit could not detect this problem at an early stage. Had the issue been detected much earlier, the problem would not have come to this situation, which has reached almost beyond the company's solution.
The government authorities and concerned departments should look into auditor's failure in the interest of good governance in corporate practice. Another similar problem was also detected in another mobile operator, Robi, but the amount was only Tk 20 billion and therefore, the problem was resolved without creating much hue and cry.
IMPACT OF GP SHARE PRICE IN THE MARKET: GP's current crisis over the huge dues with the government has caused adverse impact in the country's stock market. GP's investors, particularly small investors, have got panicked in continuing to hold this share for long time and therefore, they have been desperate to offload their holding which has created sales pressure in the market. Thus, the GP share price has drastically fallen. GP share price, which at one point reached Tk 400 each, has plunged to Tk 260 i.e. 35 per cent decline.
Since GP is a large-cap share, drastic fall in its price has contributed to continuously falling share-price index. Of course, this is not the only cause of current bearish market. It is possible that if an amicable settlement on dues is made today between the government and GP, the GP share price will start rising from tomorrow, a development which will eventually help reverse the overall market trend.
OTHER ADVERSE IMPACT OF GP: GP is one of the blue-chip shares that pay good amount of dividend to its shareholders. So, it is obvious that GP will not be able to maintain its dividend payout ratio in future because of enormous outstanding dues. As a result, shareholders and the fund comprising this share will be deprived of regular earning stream. Millions of people use this mobile service and it has nationwide network, so their development will also be impacted if this problem is not amicably resolved.
There is considerable Norwegian foreign investment in GP, so if anything goes wrong with this company regardless of whose fault it is, the country's reputation will be questioned abroad. In general, the reputational risk of the country is considered high among foreign investors, so problem regarding the GP issue with the government will be taken as an instance of unfavourable factor for foreign investment in the country.
RESOLVING THE ISSUE THROUGH MUTUAL UNDERSTANDING: Because of this unpaid huge amount of money due to the government GP is now faces a great problem and even its existence may at stake. GP's paid-up capital is Tk 135 billion while its accumulated dues to the government is Tk 1,259 billion i.e. amount of dues is almost nine times of its paid-up capital, so technically the company is on the verge of bankrupt. No company in the world can survive with such a huge amount of financial obligation.
On the other hand, if the company like GP has to be extinct or go out of the market, the ultimate consequence will be ominous not only for the corporate world but also for the government. So, in the greater interest of the country's private sector, this company should be allowed not to survive but also its growth, operation and advancement will have to be kept unaffected. This does not, however, mean that dues owed by GP to the government agencies should be waived. Of course, GP will have to pay this amount but amicable settlement will have to be reached with the government towards payment of this money.
There is usual practice that a company should not be charged for paying more than its paid-up capital. Germany-based large internationally reputed financial institution, Deutsche Bank, was accused of violating many compliance rules while undertaking transaction and this bank was initially penalised by the US court to pay fine to the tune of US$26 billion which was much higher than its paid-up capital and therefore the penalty amount was subsequently reduced to US$14 billion. Of course, Deutsche Bank's issue and GP problem are two quite different situations as the former is penalty imposed by the court for its violation while the latter is accumulation of unpaid dues which was supposed to be paid to the government on time.
Nevertheless, the government may consider waiving certain amount easing the financial burden of GP arisen out of unpaid dues. In addition, the government may consider allowing payment through monthly/quarterly instalments by GP instead of lump sum. Instalment size should be determined in such a way that GP can continue its operation, maintain its growth and investment and payment of dividend.
For doing so, if instalment size becomes small, the government should accept it because instalment size will not reduce the amount but prolong the tenure of payment. We have to keep in mind that the amount which has been accumulated and reached that enormous figure over a decade, should not be demanded over night and this is against natural justice.
GP'S PAYMENT GUARANTEE TO THE GOVT: In order to reach an agreement with the government to pay its dues through monthly or quarterly instalments as agreed upon, the government may require a kind of guarantee which GP can provide by submitting bank guarantee to be issued by its bank. GP is a corporate company with strong fundamental and highest credit standing, so it would not be difficult for it to manage such guarantee from a bank.
However, the amount is so enormous that a single bank may not be able to issue this guarantee and, in this situation, a group of banks can form a syndicate to issue this type of guarantee. This guarantee will clearly stipulate a clause which would state that following each instalment payment, the value to guarantee will automatically reduce by that amount. Since GP has considerable amount of foreign investment from Norway, it can arrange a 'Counter Guarantee' from any Norwegian bank, and the deal could be easy, convenient and cost-effective. Under this arrangement, a Norwegian bank will issue a Counter Guarantee in favour of any Bangladeshi Bank, which will issue its Local Guarantee in favour of the government.
BAILOUT NOT UNUSUAL: People may think that GP is a private sector company so why will the government interfere with it? This is true but the private sector is not outside the country's overall economy. Moreover, the private sector does not remain as private when common people's interest is involved and the company plays a considerable role in the country's finance, economy and society.
Besides, the government is considered as the last resort of help, so when any private sector entity falls in a crisis beyond its own means, the government comes forward to salvage it. This practice is found not only in many developing countries but also in the developed world. The US government hugely helped its private sector automakers GM and Ford when they were in acute financial crisis. So, the government of Bangladesh should actively consider salvaging GP from the present crisis for the sake of the country's capital market.
Nironjan Roy is a banker, living in Toronto, Canada.
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